The World Wealth Report 2012 highlights that although the median age of high net worth individuals is declining the same cannot be said of advisors.

The World Wealth Report 2012 highlights that although the median age of high net worth individuals is declining the same cannot be said of advisors.

While older, successful advisors play a “crucial role” in maintaining
and expanding the existing client base, as well as “grooming” young
advisors, the Capgemini/RBC report warns that essential client needs
could go unmet if the more “tenured” advisors opt for advisory methods
which don’t resonate with younger HNW individuals.

“Firms will therefore need to map advisors to the appropriate
category of clients to ensure the relationships are well-matched, and
perhaps develop a younger advisor workforce for younger HNW individuals
to relate to,” the report recommends.

The notion that the average HNW individual is getting younger is
significant because the current and next generation of advisors must
adapt to clients’ changing financial needs and objectives.

However, the number of advisors in the US representing the 60 to 69
age range actually fell from 24.1 per cent in 2008 to 16 per cent in
2011, according to figures from the College for Financial Planning.

While this is an important find, the underlying issue is that high
and ultra high net worth individuals tend to want “very sophisticated
relationships and don’t necessarily want to work with someone who is
up-and-coming,” Rowan Taylor, vice president at Capgemini Financial
Services, told journalists during a media briefing on the global report.

With this in mind, it is somewhat unsurprising that data from Cerulli
Associates shows that last year over one-fifth (22 per cent) of all
advisors were in fact at least 60 years old.

"In the US, the financial advisory workforce is certainly aging
across the board and even more quickly in specific segments. The average
advisor age has crept from 48 to 53 over the past decade, implying
limited recruiting of younger advisors," Chip Roame, managing partner at
Tiburon Strategic Advisors, told this publication.

"The wirehouses have cut back substantially on recruiting programs
and have also laid off many underperforming younger advisors. The net
result has been a decline in the numbers of wirehouse advisors," Roame
continued. "Similarly, the independent rep and RIA channels have aged.
And very important, if the client assets of advisors are
dollar-weighted, the average age across the board is closer to 60. The
industry has a recruiting challenge."

Demographics “continuously skewed”

While the demographic makeup of the world’s workforce is changing
because people are living and working for longer, the demographics of
the financial advisory industry are “continuously skewed towards older
advisors,” explains Tyler Cloherty, senior analyst at Cerulli, speaking to this publication.

As the current cohort of senior advisors edges closer to retirement,
firms must find ways to ensure that younger advisors are properly
trained with the skills to successfully follow in their predecessors’
footsteps, safeguarding both new and existing client relationships.

However, trust – a crucial aspect of wealth management - “comes with
many years of experience,” he explains. “Clients want to give their
money to someone who has grey hair, not to someone who left college two
years ago and has no experience.”

Younger financial advisors, even though some may be very good, aren’t
able to generate the measure of trust necessary, he says, adding that
it’s a challenge which hasn’t been easy to overcome.

“Most clients want to deal with someone who is about their age, and
people’s financial wealth peaks in their fifties and sixties, which is
why you see assets peaking for advisors within those age ranges as
well.”

If it is true that people want to deal with an advisor of a similar
age – although it’s worth noting that some in the industry contest this –
then this presents a significant problem. In the coming years,
according to The Bureau of Labor Statistics, the primary driver of
growth within the personal financial advisory space will be the aging
population.

“As large numbers of baby boomers approach retirement, they will seek
planning advice from personal financial advisors,” the organisation
says in its Occupational Outlook Handbook for 2011.

This is perhaps why the Bureau forecasts job growth in the industry
in the period 2010 – 2020 that is much faster than the average in the
US.

However, the top-line numbers of the industry are beginning to
stagnate and even decline to some extent, Cloherty warns. “More advisors
are retiring and leaving the industry as they grow old, compared to new
talent coming into the industry.”

Human capital management as risk management

The financial turmoil of 2008 resulted in many of the programs for
new trainees being cut or “brought down significantly,” which Cloherty
asserts is where the hidden issue lies. The volume of new talent has
taken a beating, but the industry has yet to establish an effective way
of recruiting new and successful advisors.

This idea ties with the view of Dr Jim Grubman, of FamilyWealth
Consulting, who says: “If you don’t look ahead five years or more,
making sure you are developing a deep bench of capable client advisors,
the aging of the senior people is going to become a serious risk to the
firm’s longevity.”

Interestingly, however, Grubman advocates a slightly different view
about the concept of an aging advisor workforce. He believes the
demographics in wealth management are “actually bifurcating,” with a
large volume of senior advisors and firm owners reaching their sixties
while a new and “equally large” group of young advisors fill many of the
client-facing positions.

Yet Grubman acknowledges that the statistics on client retention when
an advisor leaves or when generational wealth transfers occur “aren’t
great.” In response to this, many firms have started to gravitate
towards a team-based model in a bid to boost the expertise of younger
advisors.

Emotional intelligence versus technical skills

The team-based approach involves one senior or “lead advisor”
collaborating with specialists and, most importantly, junior-level
advisors. This gives junior advisors the opportunity to meet top-level
clients whom they perhaps wouldn’t get the chance to meet otherwise.
Nevertheless, there are important questions to address about the
effectiveness of such training.

A training model focused on mentoring and modeling client
relationship skills “has its risks,” Grubman says. “There are potential
problems with that, because a lot depends on the individual capacities
of both the trainee and the mentor.

“For example, we know that emotional intelligence makes a big
difference in this area, but many younger financial advisors aren’t
necessarily skilled in emotional intelligence versus technical
intelligence. Just because someone is teamed up with a more senior
advisor doesn’t mean they’re going to be able to pick up on the
mentoring and the modeling,” he says.

Rather, Grubman raises the question of how the current successful,
more senior advisors initially developed their own expertise in this
field.

Often, this was more of an informal “apprenticeship” model whereby
skills such as listening, how to draw out clients’ concerns, and how to
interview appropriately may not have been taught very well. “A lot of
what is attempted to be mentored are the client relationship skills, not
just technical skills. But not everyone with good client skills is good
at teaching them.”

However, even the traditional informal apprenticeship model may not
be sufficient for the modern firm or the modern investor, he remarks.
“What’s happening in the industry now is a better combination of more
formalized assessment of emotional intelligence capacity in potential
hires, along with better methods for teaching these skills using
effective techniques.”

He also observes that young advisors have “quite literally never
encountered a sustained bull market and don’t know what it’s like or how
to do planning for it. At some point, those skills will be needed
again.”

Advisors working for longer

Cloherty anticipates that the average age of financial advisors will
gradually “tick up” further, as advisors find it increasingly difficult
to retire when confronted with issues such as the value of their
practice not matching their expectations.

In turn, more advisors will probably “phase out” over time, taking
part-time roles or transitioning slowly while still retaining a portion
of their income. In doing so, with the assets they generate they’ll be
more inclined to boost the size of their team, taking on more junior
advisors, which will help “stem the tide” of an overall decrease in
advisor population.

But despite these forecasts, as Grubman says, it’s a complex
situation which in part relates to normal demographics - the fact that
senior people are often more experienced and skilled - but equally, and
perhaps most crucially, that firms must plan ahead for this in the
modern era.

Indeed, the very concept of an aging advisor workforce is encouraging
firms to recruit more “up-and-coming” advisors with greater emotional
intelligence and skill capacity, but there’s also a growing emphasis on
the need to train them effectively, over a longer period of time, to
prepare them for handling the “client of the future.”